New research [1] has exposed the staggering impact of the gender pension gap.
The study shows that women have smaller pension pot sizes in every age bracket, and the situation worsens the closer retirement gets. Worryingly, women, on average, retire with less than half the income of men.
Reduction in amounts paid into pensions
The amount someone pays into pensions significantly impacts their income in retirement. The disparity between men’s and women’s contribution rates is stark.
One factor behind this is that for most, the effect of working part-time means a reduction in pension contributions. If someone opts to reduce their full-time working hours to three days a week, they might expect their pay and pension contributions to reduce by 40%. However, the impact could be more significant because of auto-enrolment (AE) thresholds.
Someone earning £30,000 opting to reduce their hours by 40% would see their pay fall by 40%. However, because of the rules that govern auto-enrolment pension contributions, their pension contributions would reduce by around 50%. Someone earning £20,000 would see their pension contributions fall by over 58%.
Pension contributions are unlikely to be a deciding factor when considering working part-time, but understanding the long-term impact is vital.
Paying more into pensions
Some might consider paying more into their pension, but rising living costs might make this more of a struggle than before. Another option for some parents could be sharing the caring responsibilities to help spread the long-term financial impact of childcare.
One meaningful change to help women in this position would be changing the rules governing auto-enrolment pension contributions. Changing these rules could help massively, and the government has promised they will review this by. the ‘mid-2020s’.
Actions that can help close the gap
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If you are working part-time and a member of a workplace pension scheme, consider increasing your monthly contributions if it is affordable.
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If you earn less than £10,000 per year, speak to your employer about your options for joining your company pension scheme.
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If you are considering working less to help balance family life, you might want to consider if you or your partner should work part-time. As part of those considerations, you might want to determine which of you gets higher employer pension contributions.
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Paying into pensions early in life allows a small amount to build up over time.
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For those in a long-term relationship, have a stake in your finances.
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Should divorce ever come into the picture, keep pensions at the forefront of your mind when splitting assets.
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Check your National Insurance record to see if you will get the full State Pension amount when you retire. You need a total of 35 years of National Insurance contributions, or, in some cases, you can apply for credits. If it looks like you might be short, you might have the option to pay to fill in the gaps.
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Apply for Child Benefit even if your household income means you would have to pay it back because you earn too much as a couple. If you are not working while looking after a child, any years you claim Child Benefit count towards your state pension.
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Talk to your employer about the policies they offer.
Whatever retirement means to you, we’re here to help you establish a financial plan for the lifestyle you want. If you want to find out how we can help, please book a free no-obligation chat here.
[1] Aviva Workplace Pension Data: Percentage difference in mean total contributions paid in January 2022, men versus women, by age group, based on a sample of 2,073,000 workplace pension plans receiving contributions in the month.
